Moonves, who turned CBS from an aging radio and TV broadcaster into a successful provider of shows to digital platforms, had been expected to reap an estimated $100 million in severance.
CBS said in a regulatory filing that it and Moonves in addition would donate $20 million to organizations supporting the #MeToo movement.
Moonves, the top executive at CBS since 2006 and a major figure at the broadcast network and media company for more than two decades, resigned on Sunday amid a new wave of allegations against him of sexual assault and harassment.
CBS had said it takes such allegations very seriously.
Moonves acknowledged three of the newly described encounters, but said they were consensual, in a statement to the New Yorker.
Later on Sunday, announcing his resignation, he said: "Untrue allegations from decades ago are now being made against me that are not consistent with who I am."
He did not respond to requests for comment on Monday.
CBS said in the filing that the settlement of $120 million would be put in a trust within 30 days and that Moonves could end up with nothing if the result of the investigation went against him. (https://bit.ly/2CCLyui)
The board will decide on the course of action before Jan. 31 and its determination will be subject to binding arbitration.
Separately, CBS and its controlling shareholder National Amusements Inc (NAI) will also end litigation for control of the company, putting a halt to one of America's big media corporate struggles.
Moonves had opposed efforts by NAI, which is owned by Shari Redstone and her father Sumner Redstone, to merge CBS with Viacom Inc, another company they own.
Monday's filing confirmed NAI had agreed to not propose a merger between CBS and Viacom for two years unless it gets a vote of two-thirds of directors not affiliated with the controlling shareholder.
"The hiatus certainly does nothing to dispel the notion that the Redstones intend to recombine the two companies, leaving the existing overhang on CBS shares mostly unchanged in our view," Cowen analyst Doug Creutz wrote in a client note.
CBS shares fell 1.5 percent to $55.20.
In earlier court filings, NAI had dropped support for a deal before it was sued in May by CBS for control of the company.
The settlement does not preclude other parties from suggesting a merger or bringing other potential transactions to the board.
Shari Redstone-controlled NAI will also consider in good faith any other deal suggested by those unaffiliated directors.
Chief Operating Officer Joe Ianniello will take over as interim CEO as the board searches for a replacement of Moonves.
In a note to CBS employees that was seen by Reuters, Ianniello did not mention the allegations against Moonves, saying that the company was in a position of strategic strength and that it was important to make clear the company's commitment to "diversity, inclusion and a safe and positive working environment."
Moonves' wife, Julie Chen, who serves as host and moderator of "The Talk" and hosts reality show "Big Brother" on the CBS network, said in a statement on Monday that she was taking a few days off to be with her family.
(Reporting by Supantha Mukherjee in Bengaluru; Editing by Bernard Orr)